Why is Digital Currency Mining so Competitive?

11 Jun 2018

Bitcoin mining started nearly a decade ago when cryptography enthusiasts and students provided CPU power from dorm rooms and old, out-of-commission computing rigs, completing cryptographic puzzles that are a central part of mining.

Marco Streng, the CEO of Genesis Mining and co-founder of HIVE, entered the Bitcoin mining world when he set up his first miner in his Munich dorm room back in 2012.

Five years later, Marco explained to Business Insider just how much the industry is evolving.

“When building our data centers, we place the highest priority on time. Time counts so much. We use the fastest delivery possible. You risk the opportunity to mine for the days you are delayed. If you are deploying 10 days later, you are losing 10 days of mining -- that is the cost.”

From dorm rooms to 747s in just five years, this is an accurate portrayal of just how competitive the industry has become.

Bitcoin mining has come a long way over the last nine years, and now the mining game is a much bigger (and more lucrative) endeavor than ever before.

From CPUs to GPUs to ASICs and from college dorms to huge industrial facilities that cross international lines for increased power efficiency, digital currency mining in the present day rests primarily in the hands of those who are capable of investing in large-scale industrial facilities.

These industrial mining operations, which have been described as being in the middle of an “arms race,” face three major areas of competition: location, electricity prices, and a mix of computer hardware and software.

Location

Iceland has made a name for itself as the digital currency mining capital of the world for a number of reasons. Some of the biggest players in the industry have been flocking to the country in droves. Not only does Iceland have data cables that reach both sides of the Atlantic, but its geography offers a host of other competitive advantages for digital currency miners.

For starters, data centers that are on 24/7/365 expend a lot of power to mine successfully. This generates a serious amount of heat. In most traditional data centers (i.e., non-mining data centers), costly cooling systems ensure systems remain at optimal temperatures. To stay competitive, however, industrial mining facilities need the utmost efficiency possible, even when it comes to cooling their mining machines. In Iceland, digital currency mining facilities can be constructed in a way that allows arctic winds to blow through equipment areas, naturally cooling them without unnecessary energy consumption.

Iceland’s energy infrastructure also offers a competitive advantage, which we will cover below. HIVE has invested in facilities within Iceland’s borders for many reasons: environmental friendliness, increased efficiency, lower costs, and a competitive advantage.

Electricity Prices and Energy Consumption

Electricity plays a huge role in the success of an industrial mining operation. Both the source of energy as well as its cost can make or break a mining facility. Even highly efficient mining rigs still consume massive amounts of power. Investors and other digital currency enthusiasts have voiced concerns about the environmental impact of mining digital currency. Similarly, overpaying for energy can be a red flag to investors.

This is yet another reason why HIVE invested in facilities within Iceland, where an abundance of renewable energy drives costs down while protecting Mother Nature. Both hydroelectric and geothermal energy allow Iceland to operate almost entirely on renewable energy sources. Highlands and precipitation provide the country’s hydroelectric power, while volcanoes provide geothermal energy.

Of course, hardware and software play a leading role in energy consumption, as well. Simply being located in an optimal country is not enough to stay competitive in the digital currency mining arms race these days.

Computer Hardware and Software

When using such an incredible amount of power, digital currency mining companies want to get the most bang for their buck per kilowatt hour. This is where top-notch software and hardware come into the equation. It takes both hardware and software to fully utilize the power consumed by mining machines.

Digital currency mining hardware quickly evolved from CPU mining to GPU mining to Application Specific Integrated Chip (ASIC) mining. The first ASICs used to mine Bitcoin were 100 times more efficient than GPU mining, phasing out GPU mining within a month.